The meteoric rise of British digital challenger bank Starling has encountered significant headwinds, following a £29m fine from financial regulators over what they described as “shockingly lax” financial crime controls. The penalty marks a stark contrast to the bank’s ambitious beginnings and threatens to impact its 2024 profit projections significantly.
Founded in 2014 by Anne Boden, Starling positioned itself as a mature player among digital banking upstarts, leveraging Boden’s three decades of banking expertise and substantial backing from Austrian billionaire Harald McPike. The bank’s early success in securing a UK banking licence in 2016 set it ahead of competitors Monzo and Revolut.
The Covid-19 pandemic initially appeared to accelerate Starling’s growth trajectory, as the bank eagerly participated in the government’s Bounce Back Loan Scheme (BBLS). The programme saw Starling’s lending portfolio explode from a modest £23m pre-pandemic to £1.6bn by March 2021, while its business customer base expanded from 87,000 to 330,000.
However, serious concerns emerged regarding the bank’s financial crime controls. The Financial Conduct Authority (FCA) identified numerous issues with Starling’s anti-money laundering and sanctions controls during a review of challenger banks. Internal audits from 2018 had already highlighted significant gaps in procedures, though these warnings apparently failed to reach the board or regulators effectively.
The situation deteriorated further when it was discovered that the bank had breached voluntary requirements by opening 54,000 accounts for high-risk customers, generating £900,000 in fees and interest. Technical oversights allowed previously banned customers to reopen accounts, while sanctions screening systems operated with incomplete data for years.
As new CEO Raman Bhatia takes the helm following Boden’s departure, Starling faces the challenging task of rebuilding its reputation and strengthening its compliance framework. The recent regulatory findings have likely delayed any potential stock market listing, with analysts suggesting an IPO might not be feasible for at least two to three years.
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